CAC 40 Index Crossed Key Resistance. Is it a Good Buy?

Summary:
• The CAC 40 index has bounced back in the past few days as global equities rebound and as the ECB raises rates

The CAC 40 index has bounced back in the past few days as global equities rebound. The blue-chip index has risen to €6,200, which is about 7.10% above the lowest level this year. It is also the highest it has been since June 10th of this year. This performance is in line with how other leading indices like FTSE MIB, FTSE 100, and DAX have performed this week.

France stocks rise after ECB decision.

The CAC 40 index rallied even after the European Central Bank delivered its first interest rate hike in 11 years. The bank surprised analysts when it decided to hike interest rates by 0.50% on Thursday. 

It also hinted that it will continue hiking rates in the coming months as it battles to bring inflation back to 2%. That will be a tough act for the ECB since inflation in France and the euro area currently stands at over 7%. 

France stocks also rose after Russia restarted delivering natural gas to European countries using Nord Stream 1 on Thursday. This was notable since some analysts were expecting Putin to continue squeezing the bloc for its support of Ukraine. Still, there are concerns about gas rationing in the coming months.

Further, the CAC 40 index has succeeded as the euro has crashed to the lowest level in over two decades. However, a weak euro is a double-edged sword for many France companies. For example, companies with large operations overseas see better performance in euro terms. 

On the other hand, companies with domestic operations that depend on imports are suffering as the cost of inputs rises. This includes companies like Airbus, Safran, and Saint Gorban.

The worst performing CAC stocks in the past 30 days were Societe Generale, Orange, Bouygues, BNP Paribas, and AXA. On the other hand, the best performers in the index are Teleperformance, Hermes, Airbus, and Legrand.

CAC 40 forecast

The four-hour chart shows that the CAC index formed a strong bottom at about €5,826 in June and July. This week, the index managed to move above the important resistance level at €6,153, which was the upper part of this bottom. In addition, it has crossed the 25-day and 50-day moving averages and the important level at €6,087.

Therefore, CAC 40 will likely keep rising as investors target the key resistance point at €6,330. A drop below the support at €6,087 will invalidate the bullish view.